Investing in a Bear Market

Know Yourself and Your Timeline
Consider your age, your long-term goals and your proximity to retirement. As you know, all financial products carry some risk. But some investments, such as stocks, are riskier than other types of products, such as CDs. In a bear market, a consistent stock investing strategy can help you work toward your long-term goals, including retirement. But the closer you get to retirement, the more it becomes a short-term goal, making it important to focus on preserving your financial assets. If there’s a bear market before your retirement, you may want to move some assets into less risky investments to focus on preservation, unless you want to delay retirement until the market bounces back.

Remember Your Risk Tolerance   
Remember that the higher your risk tolerance, the more likely your investments are to fluctuate in value over time. A portfolio designed for high returns will likely have a large percentage of equity investments, the prices of which usually vary the most during bear markets. That short-term fluctuation probably won’t harm the chances you reach your long-term goals, but if you also have short-term goals, such as buying a new car, consider CDs or high yield savings accounts to balance your portfolio. Generally, younger investors tend to have a higher tolerance for risk because they have more time to make the money back if something goes wrong.

Buy at a Discount    
Consider that stocks are “on sale” during a bear market. The stock market has recovered from each crash in history and ultimately gone on to produce positive, long-term returns for investors. When stock prices fall, you can buy more shares for the same price, making it a good time to increase your contributions to a retirement account. If boosting your contribution all at once feels like too much, you can do so in increments or check to see if your employer has an automatic escalator that increases your contribution rate for you. If you own individual stock and plan to hold onto it through the bear market, this may also be a good time to buy more individual shares.

Reevaluate Your Goals Against Your Portfolio
When the market dips, compare your investment portfolio to your goals, paying special attention to your risk tolerance and how much time you have before you need your money. A bear market might not prevent you from reaching your long-term goals if retirement is still a long way away. Still, it’s a good time to check that you don’t have too much of your portfolio concentrated in one asset type. If, for example, you have a large share of your money in U.S. large cap stocks, and they decline, your portfolio could take a hit.    

Keep Some Cash
It’s always a good idea to have enough cash on hand to cover your needs for the next year. Don’t forget to include funds for emergencies. We all wish they wouldn’t happen, but, unfortunately, that doesn’t prevent them.